Comment of the Day: Enjoy the Ride

COMMENT OF THE DAY: ENJOY THE RIDE Houston Driver“Houston: the wonder city that showed the country how laissez-faire economics, conservative values, and lax planning lead to growth and prosperity. It turns out Houston was just benefiting from another bubble and a siphoning of wealth from the rest of the country via higher gasoline prices. The shale boom was supposedly proof that peak oil was dead and we can keep building car-dependent cities. Houston was riding into the future in its new Mercedes. It turns out that shale was only accessible at prices too high to pay to maintain strong economies around the world. When consumers cut oil demand, the shale, deepwater, and tar sands dry up. We’re on the slope downward, folks. Oil prices will likely spike again when demand returns, Houston may boom temporarily, but consumers aren’t going to be able to pay for it forever. After the spike, demand slackens, prices drop, and expensive new oil projects are cancelled. Production drops, demand outstrips supply, and we hit another price spike. Over and over it goes until we one day wonder why we can’t afford to open the oil taps as wide as we could in the 2000-2010s. The thriving economies will be the ones that depend least on oil.” [Carpetbagger, commenting on Oil Price Plunge Leads to Stock Downgrade for New Greenway Plaza Owners] Illustration: Lulu

26 Comment

  • Allow me to lead the OFFICIAL Republican Response to the comment of the day. *puts fingers in ears*. I’M SORRY I CAN’T HEAR YOU.

  • @NotCommonsense
    Your identity revolves around mocking people (or person) you hate. How so terribly sad.

  • CoDs are pretty disappointing these days…it’s a shame that Carpetbagger lives in a bubble.

  • This isn’t the ’80’s, where Houston is a one-economy wonder dependent entirely on oil production and refining. Cheaper oil means more consumer activity, and cheaper feedstocks for all the plastics manufacturers on the Ship Channel who produce the stuff to make those consumer items. We’ve got more non-O&G sector companies here than we did in the ’80’s, too.

    I think all we’ve seen with the boom here is that Houston was undervalued (because of the climate, plus that lack of zoning and car culture that makes it undesirable) while other cities were over-valued. The shale boom coming on the back of the recession, along with the major quality-of-life improvements that Mayors White and Parker have championed, have equalized us somewhat. The shale boom may go away, but all that will do is drop us to par with the rest of the country in economic growth, at worst. I still think we’ve got a head of steam that will let us stay ahead in growth even when shale drops off.

  • this person clearly does not understand what is going on in the oil market right now.

  • Sorry to spoil this rant with facts, but shale oil remains accessible at current prices, and most of it will continue to be accessible at prices above $30/barrel. Nothing has “dried up” except that the most expensive projects have been delayed. Meanwhile hiring continues (albeit more slowly), and the hundreds of thousands of jobs created continue to receive paychecks. Plus if “peak oil” has any truth, high prices will be back soon enough. Lastly, far from “siphoning of wealth from the rest of the country,” shale oil has only made oil cheaper for the rest of the country and world. The only siphoning of wealth has been from other oil producing nations that have lost market share to the U.S. There’s a tragedy…

  • We’re giving obvious trolls CoD status now? That’s pretty sad.

  • Excuse me. I dont hate or mock anyone …. But I do strongly dislike hippies, hipsters, Obama, communists, socialists, moochers, liberals, europeans, artists, musicians, RINOs, environmentalists, trees… oh and people who drive slowly in the left lane (they’re leftists!)

    The only think I will ever mock, is public parks.

  • Diggity, does everyone with whom you have a differing opinion qualify as a troll???? If so, does that make you a troll??? Just sayin………..

  • Demand does not need to return because it has not fallen, at least not yet, it just stopped rising at the rates that were priced in to the market and incentivizing more production. The fall in oil prices is a market reaction to oversupply. Right now, there is more oil available than will sell at $100/bbl, so the price drops until there are more takers or fewer producers.

    There are a wide variety of basins with a spectrum of production economics. Marginal fields come in all kinds, shale and conventional. Those will cease production/development first, but nothing “dries up”, they will come back online as prices rise back up and/or technology makes them cheaper.

    Anyone with a shovel, a bucket and a truck can make money at $100/bbl. The less efficient producers in less efficient fields will stop production and supplies will equalize with demand as price falls. It may take some time to play out, but I’m fairly certain that if you cut all of the marginal fields that don’t make money at $50, production will be well below demand. If anyone knew exactly where that equilibrium was, they’d be instant gazillionaires. The market is trying to figure that out right now.

    And it is a reasonably efficient market, though prone to bubbles just like every market there ever was. Things need to adjust, but at the volumes that the world is using, the general trend in oil prices will be sustained. If oil goes really low and stays there for a while, it will be because global demand went in the tank, and if that happens, it won’t just be Houston that is hurting.

  • Houston may not be so heavily oil dependant, but it is still the major source of high incomes, capital and professional recruitment.

    Working in finance, I can say that a lot of money was sunk into a number of expensive projects, and those expensive projects were supposed to yield the cash to keep development going. That is done.

    This city still doesn’t have the sort of environment and infrastructure that will bring in money outside oil, except standard procedure healthcare.

    Jobs are not growing. In fact schlumberger is already laying off workers and engineers. This city didn’t have much growth until a few years ago because there wasn’t much demand. Carpetbagger is right.

  • for such a heavily moderated site Swamplot sure does have a lot of trolls.

  • @I Love Heights Walmart

    You can’t just say “this person doesn’t understand what’s going on in the oil market right now” without explaining what he got wrong for us who aren’t so in the know. CoD’s conclusion seems pretty strong to me, and the downgrade for the Greenway Plaza owners seems to indicate that least some of the market agrees with him.

  • @NotCommonsense
    I do hope you get a new hobby for Christmas. Comical at first, your continued diatribe against things you disagree with just makes you sound bitter and lonely.

  • HeyHeyHouston I agree, its pathetic really…

  • @jesse
    yes i can, but i wont

    the energy market is reacting to oversupply of oil, not reduced demand. OPEC has increased production in an effort to retain their market share by putting US and other producers out of business (or trying to). These low prices will only create more demand for oil in the future, not less, as alternatives become less competitive as a result. This is a price war, and it will end.

  • Demand for oil is still GROWING. The problem is that the amount of growth is going to be less than anticipated. Supply has been growing right along with demand. But, supply in the oil business is the proverbial cruise ship when it comes to changing direction. Add to that the fact that there is very little excess storage capacity in the supply chain and you have a very, very volatile commodity. And it also works the same way going the other direction. When Libya went off line due to the revolution, oil prices shot up even though the supply disruption was not nearly as significant as the reaction in the market. So, the current situation is not attributable to high oil prices. Other factors have caused the growth in oil demand to slow (China’s real estate bubble, Japan’s stagnant economy slipping back into recession, EU’s recovery floundering).

  • Carpetbagger’s statements are partly accurate, but perhaps from a bad line of reasoning and in spite of themselves.

    What has happened over the summer is that markets were reacting to eroding prospects for global economic growth, especially in the developing world. The recent OPEC decision essentially to abdicate the power to artificially constrain supply put additional downward pressure on a price that is driven by inelastic supply and demand functions. And then this week has let forth a whole volley of bad news that has accumulated into what appears to be a vicious cycle of financial horrors for the energy sector, including the prospect that a liquidity crisis could bring on a widespread freezing up of credit and/or a global recession. If that happens then oil prices will go down even further. So now, because we’re afraid of systematic risk, we run the risk of actualizing the systematic risk because we’re afraid of systematic risk — it’s a panic of sorts, unfolding slowly.

    It will be very painful for Houston and for Texas. However, bear in mind, these shale oil and fracking plays have fast depletion curves compared with conventional wells. Supply will catch up with demand, well enough, even if demand stabilizes at a lower level. That won’t happen immediately, but it will happen. And then, turmoil over, supply equalized, and with very few new E&P projects on the immediate horizon, oil prices will rise again. I expect that OPEC is going to move to constrain supply in the second half of 2015, but that it may be a temporary measure to bolster the finances of member countries, however I also don’t expect that they’re going to desire especially a return to especially high prices anytime soon. They’re going to want to keep new production at a constrained level and maintain market share. My medium-term outlook is $70 to $85 per barrel of Brent Crude. That could persist for a number of years and Houston will have to put up with it.

    Longer term, the price will likely rise beyond that and trigger production increases again. Natural gas prices are likely to have risen by then as well so that production is more balanced, sort of like it was not really so long ago. And Houston will go back to growing quickly but not like it has been, more on the order of other sunbelt cities. And yes, people will still drive cars. There will still be oil. It’ll still be basically affordable.

    Actually, one of the things that the Saudis really like about low oil prices is that it curbs the adoption of alternate energy and the rate of demand destruction of fossil fuel use. Refiners should like it, too.

    @ Chris C. : I’ve seen the data on energy industry diversification and parsed through it myself on several occasions. I don’t believe that there is much evidence that Houston’s economy is highly diverse. And the spectacular economic growth and construction projects and disposable income and tax revenues aren’t coming from diverse areas at all. Also, the downstream side of the economy is a lot less labor-intensive than it used to be, so the upside there is more limited. As to quality of life issues buoying population growth, I hear Pittsburgh is a nice city but that doesn’t say much for its economic prospects; and Houston is a whole lot more like Pittsburgh in terms of its reliance on commodities and raw materials than it is like Austin.

    @ Mike: The research that I’ve seen indicates that 80% of North American shale plays have been rendered uneconomic by the collapse in oil prices. Also, those fields that remain feasible for new investment are mostly in North Dakota and Canada; so the blue collar service sector in Texas is likely to suffer. Numerous on-shore and off-shore conventional plays are still feasible, although the financial shakeout that’s currently under way is likely to affect them in terms of their ability to finance new projects. A lot of them were highly levered, and those that were healthy are now going to have reduced cash flow from operations and and probably an inability to lever.

  • @NotCommonsense – I disagree, keep on keeping on – you provide some much-enjoyed levity!

  • Carpetbagger’s CoD did strike a chord! I tend to agree with it.
    Same ole same ole technology of drilling (and mining) and piping and burning is not the future I want for my kids’ kids. So if there are more people like me, the energy sector needs to put its thinking cap on.

    Yesterday as I drove home from IAH I was reminded that Houston is Energy Capital of the World!
    (but I still can’t figure out the giant LED water faucets)

  • Ahhh, another person predicting the end of oil. Congratulations you’ve stated the obvious. Everyone knows oil won’t last forever. The trick is knowing how long it will last. As long as the oil economy lasts longer than I live then I don’t care. Consumers don’t have to pay for it forever, they just have pay for it long enough for me to retire.

  • Welp..time to start selling crack again!

  • I would never, ever, take an opposing persons of which I disagree with, create some sort of “strawman” out of it, and attack that ‘strawman’. That is below me. I debate opposing arguments directly.

    Now, if only the Hippie liberal communists would stop trying to control the oil markets we could get some real progress in Houston!

  • “Oil Companies need to put their thinking cap on” I am pretty sure they are sucking up some of the best scientist and engineers from around the country. The new technologies that are coming out of oil & gas development will change the world. Many companies are pumping lots of money into a resource that can be as valuable as oil… water. Just wait and see the water resuse technologies that are going to come out in the next few years. As for the depletion curves of unconventionals.. while this is usually true, this isn’t a fully development technology, so there is a learning curve associated with every play/sub-play. Unlike conventionals, later wells are actually more productive than early well.s.

  • the rant by carpetbagger is woefully uninformed and not worthy of being posted on your site.

  • Global demand for oil is NOT growing:, and hasn’t been for many months. Add the 1M barrels/day being produced in American shale plays to the global supply and you have classic economics 101: bigger supply + smaller demand = lower gas prices. And despite claims that Houston’s economy has diversified, more than 80% of the corporate relocations to Houston in the past couple of years have been in energy or energy-related fields. While this probably won’t be as bad as 1985, we’ll certainly see the effects of cheap gasoline…and apartment overbuilding…in Houston in coming months.